Investing in mutual funds is supposed to be one of the most preferred ways to create wealth. Thanks to the option of investment through Systematic Investment Plan (SIP), people can build up a healthy corpus even with a small investment.
The Mutual Fund Industry is witnessing phenomenal growth of SIP-based investments in the last few years which can be attributed to the sheer simplicity of investment avenue. SIP provides a mechanism of making investments systematically on a regular basis in mutual funds. The most popular way is to invest is on a monthly basis, but daily, weekly and quarterly options are also available.
The great thing about SIP is its minimal investment amount. You can start from as little as Rs 500 a month. Thus instead of making a lump-sum investment of say Rs 5000, one can opt for SIP route & pay Rs 500 in 10 periodic monthly instalments. Thanks to SIP, mutual funds are now within the reach of the common man as it enables even those with tight budgets to invest Rs 500 or Rs 1,000 on a regular basis in place of making a heavy, one-time investment.
Yet one of the biggest myth in the industry is that SIP is meant for small investments & they work for small investors only. On the contrary, SIP is also used by many high net worth individuals as a mechanism to invest in the markets. The reason for this is pretty simple. More often than not, equities exhibit great volatility and are prone to fluctuations due to several unknown and known factors. To beat the blues, smart investors opt to invest through SIP and then let it take care of their investments on an auto-pilot mode. With the benefit of Rupee Cost Averaging (Rupee Cost Averaging is an approach in which you invest a fixed amount of money at regular intervals. This in turn ensures that you buy more units of an investment when prices are low and less when they are high) and the principle of compounding (Compounding means that the returns on investments themselves become part of the investments and start generating returns) returns at work, SIP is a great way to create a corpus over the long term.
To conclude, big or small, SIP is an effective mechanism to inculcate the habit of long-term and disciplined investments among investors.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully..